654636

Cougress of the United States
Washington, ACE 20515

July 29, 2011

The Honorable Hilda L. Solis
Secretary of Labor

U.S. Department of Labor
200 Constitution Avenue, NW
Washington, D.C. 20210

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Dear Secretary Solis:

On April 14", we wrote to express serious concerns with the Employee Benefits Security
Administration’s (EBSA) proposed regulation to mandate all appraisers of private company ESOP stock
be ERISA fiduciaries.

Private ESOP companies in our States provide good-paying jobs that benefit employees and their
communities. These companies continue to express strong opposition to the Department's proposal.
They remain concerned new regulations will cause costs to rise, negatively impact company expansion
plans, create confusion between current ESOP trustees and appraisers, and generate costly legal disputes.

In public hearings on the proposed regulation, we have been informed EBSA officials disagreed with the
view of some commentators that making private company ESOP appraisers ERISA fiduciaries would
conflict with an appraiser’s legal and professional obligations to be independent. Persons testifying in
opposition to the proposed regulation cited the Internal Revenue Code Section 401 (a)(28)(C).
Furthermore, a June 15" letter from the Appraisal Standards Board (ASB) - an organization Congress
authorized in 1989 to establish standards for appraisers - supports this argument. The letter (copy
attached) states an appraiser cannot be independent as required by accepted appraisal standards and also
be an ERISA fiduciary.

Private ESOP companies also note the proposed regulation was developed in a manner that appears
inconsistent with the Administration’s directive to its agencies to avoid harmful, burdensome
requirements through regulations when other effective approaches could be used to achieve the agencies”
goals. Specifically, Executive Order 13563 sets forth steps that an agency is to follow in promulgating
regulations. We have been told EBSA did not follow any of the recommended steps in EO 13563.

We respectfully ask the Department to provide in writing (1) its legal justification for maintaining an
appraiser can be independent and an ERISA fiduciary in view of IRC Section 401 (a)(28)(C) and the
ASB’s letter, and (2) why the Department feels that EO 13563 is not applicable to its rule-making
procedure involving appraisers of private company ESOP stock?

Thank you in advance for your consideration of this matter. We look forward to your response.

A

ChatlesBoustanyr., Geoff Davis
Member of Member of Congress

Sincerely.

PRINTED ON RECYCLED PAPER


‘THE APPRAISAL FOUNDATION
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“Standards end Appraiter Qoalifitisns

a ; APPRAISAL STANDARDS BOARD.

June 15, 2011

Employee Benefits Security Administration (EBSA)
U.S. Department of Labor

Room N-5655

200 Constitution Avenue, NW

Washington, DC 20210

RE: Definition of Fiduciary Proposed Rule (RIN 1210-AB32)
Via Electronic Mail: e-ORI@DOL.gov

Dear Sir or Madam:

The Appraisal Standards Board (ASB) of The Appraisal Foundation is authorized by Congress as
the source of appraisal standards, These standards are promulgated by the ASB via the Uniform
Standards of Professional Appraisal Practice (USPAP).

It has recently come to the attention of the ASB that the Department of Labor is considering
proposed regulations that would recognize appraisers as “fiduciaries” under the Employee
Retirement Income Security Act (ERISA). Specifically, one of the tests in the proposed
regulations that would establish an individual as a fiduciary is as follows:

Provide advice, appraisals or fairness opinions as to the value of investments,
recommendations as to buying, selling or holding assets, or recommendations as to the
management of securities or other property. (Bold added for emphasis)

The ASB sees a significant potential conflict with USPAP if appraisers are recognized as
fiduciaries. As you're certainly aware, Black's Law Dictionary defines “fiduciary,” in part, as
follows:
“...a person is a fiduciary who is invested with rights and powers to be exercised for the
benefit of another person." (Bold added for emphasis)

An “appraiser” is defined in USPAP as:

_ “One who is expected to perform valuation services competently and in a manner that is
independent, impartial, and objective." (Bold added for emphasis)


June 15, 2011
Page 2 of 2

In addition, the first line of the PREAMBLE to USPAP states:

“The purpose of the Uniform Standards of Professional Appraisal Practice (USPAP) is
to promote and maintain a high level of public trust in appraisal practice by
establishing requirements for appraisers.” (Bold added for emphasis)

One of the primary tenets in achieving public trust has been fostered in the principle that an
appraiser musf be a disinterested third party in the transaction. In fact, the ETHICS RULE in
USPAP prohibits an appraiser ftom performing with bias or advocating for “the cause or interest
of any party or issue.” Black’s definition appears to require that a fiduciary perform as an
advocate, The role of a fiduciary is clearly inconsistent with the recognized and accepted

independent role of an appraiser.

It is the belief of the ASB that an individual cannot act “for the benefit of another person” and
remain “independent, impartial, and objective” at the same time. As a result, if the proposed
regulations are adopted, appraisers would be put in a position where they are conflicted between
the Department of Labor regulations and USPAP (which state licensed and certified real estate
appraisers are required by law to comply with).

As a result, the ASB strongly urges the Department of Labor not to include appraisers as
fiduciaries in the regulations as currently proposed.

If you have any questions or need additional clarification, please feel free to contact us.

Sincerely,

Zeke

J. Carl Schultz, Jr.
Chair
Appraisal Standards Board